December Cotton was a breakout candidate today-yesterday had a narrow trading range, and although it wasn’t an inside day (I like the ID/NR combination as a breakout signal), it was a doji, so I knew to be looking for a breakout trade on Wednesday. The chart below is of the day session only-you don’t have to stay up at night to catch every breakout!) That being said, more and more breakouts are occurring in the overnights markets.)
December Cotton opened sharply higher, just shy of gapping higher. A strong opening like this can be cause for suspicion-the old saw is the public trades the open and thr pros trade the close. In this case, however, the strong opening was indicative of the day to follow, as it gapped over trendline resistance on the open, and proceeded to break over Fibonacci resistance at 64.78. The stong close may be a foretaste of further gains to come.
Fundamentally, there may have been some panic in the cotton pits today as cotton traders attempt to “bid for acres” for next year’s crop, as new crop soybeans (Nov ’08) have broken out into new highs in the past days. For Southern farmers, the prospect of double cropping wheat, then soybenas (which replenish the soil) is attractive given the high prices for food crops. In addition, the cheaper dollar makes US cotton more competitve on the world market. Longer term, 80 cents may not be a farfeteched price.
